Market Monitor - Consumer durables - Poland

• Further growth expected in 2016
• Introduction of a retail tax could hurt businesses’ margins
• Payment terms are 60 days on average

The consumer durables retail sector continued to grow in 2015, helped by robust GDP growth (up 3.5%) and buoyant private consumption. According to Statistical Office, retail sales of furniture and household appliances increased 4.3%, while sales of textiles, clothes and shoes rose 8.2%.

Given the positive economic outlook for 2016, with GDP and household consumption forecast to increase again above 3%, further consumer durables sales growth is expected.

Businesses’ accounts show that profit margins have remained stable or just decreased slightly in 2015. A market adjustment due to several large bankruptcies in 2013 and 2014 and rising demand provide the remaining players with some breathing space for the time being.

Payment terms are 60 days on average, but very much depend on the type of goods - from 30 days for electronics and small appliances to 180 days for large appliances. Payment delays decreased in the last six months and are expected to level off in the coming months. The insolvency trend has further improved in 2015, and consumer durables retail business failures are expected to level off in the coming months.

However, the gap between stronger and weaker consumer durables retail businesses is growing and further problems can be expected later this year or in 2017. Costs for bank loans are expected to increase as a result of a new tax imposed on banks. The government plans to introduce an additional tax on retailers along turnover size in the course of 2016. The exact scope of this retail tax has not yet been decided, but it seems most probable that only very small retailers will be excluded, while a tax range of 0.7% to 2% would affect profit margins of mid-sized and larger retailers, given the low profitability in the sector (below 1% for most household appliances retailers).

At the same time, export sales of household appliances have decreased since the change of VAT regulations in July 2015 and as a result of actions taken by manufacturers in order to discourage Polish retailers from exporting (sales prices in Poland are still lower compared to Western Europe due to lower personal incomes).

Due to the still persisting sales growth, but also taking into consideration the challenges mentioned above, our underwriting stance remains neutral on the consumer durables retail sector.